CHICAGO, Illinois (CNN) --City officials have been blocked from filing criminal contempt charges against the owners of the E2 nightclub where 21 people died early Monday.

Judge Daniel Lynch ruled Tuesday afternoon that the city must show more evidence to justify criminal charges.

The city had claimed a court order from last July banned the club from operating on the second floor of the building -- the site of Monday's deadly stampede.

Attorneys for the club said the "second floor" discussed in the order referred to an elevated skybox area within the club -- not the second floor of the building.

City officials did not immediately say what steps they would take following the judge's decision.

City officials had sought a temporary restraining order to close down the club, but the club operators agreed to shut down E2 as well as the ground-floor restaurant Epitome.

Lynch approved the arrangement.

Mayor Richard Daley spoke about the incident at a news conference Tuesday.

"This tragedy is especially heartbreaking, first because the victims were so young," he said. "Secondly, because it was a disaster that absolutely should never have happened."

Authorities said they are investigating what occurred at the E2 club on the city's South Side. Based on information they've gathered so far, it seems a stampede in the club began when a security officer sprayed pepper spray into the crowd, presumably to break up a fight.

"We have one security officer who has admitted that he sprayed pepper spray," said Chicago Police Superintendent Terry Hillard.

"We have talked to a number of the security officers who worked at this location that particular night, and the security say they do carry pepper spray."

But he said, "The manager says that security folks do not take pepper spray."

Whatever started the panic, hundreds inside rushed to get out early Monday morning. Twelve women and nine men, ranging in age from 21 to 43, died in the stampede -- many while squeezing down a staircase. More than 50 were injured.

Problems with the stairwell were among the items city officials cited in July when a court order barred the building owners from using portions of the club.

The order cited 11 building code violations, which also included "shoddy" rehabilitation work and exit lights that were not up to code, Chicago officials said.

Nevertheless, the club continued to operate on the building's second floor.

An attorney for club owner Lesly Motors Inc. said the E2 club reached an agreement with the city in October that allowed it to operate -- a claim that city officials denied Tuesday before Judge Lynch's ruling.

Jamarr Hayes, 22, recuperates at Chicago's Northwestern Hospital after being injured in the nightclub stampede.

The attorney, Andre Grant, said the club's operations were "open and well-publicized" and that the city was "100 percent aware" that it was operating.

Hillard said the police were unaware of the court order against the club.

But city officials insisted Tuesday they were following court procedures in attempting to shut down the club. They said they could not legally have placed a padlock on the door and forced it to shut down.

"Absent the city being at this property 24 hours a day, seven days a week, there is no way to ensure that these people are going to follow the law," said Mara Georges, city corporation counsel.

Daley added, "We will be reviewing the way court orders are enforced to determine whether new procedures are needed to make sure people obey them."

CNN has obtained a copy of a letter sent to the nightclub two months ago from leaders of a community organization called Bringing About Reform complaining about "extreme overcrowding" in E2 and warning it might be "catastrophic."

The club has not publicly responded.

Authorities are searching for the promoter of the event, Hillard said. He added that the man took a plane out of town Monday but that officials did not know if he had planned the trip in advance.

Officials also are seeking a temporary restraining order to close down the club and continuing efforts to revoke the liquor license.

People shouted 'poison gas'

Witnesses said hundreds of panicky club patrons rushed for the door about 3 a.m. (4 a.m. EST) Monday.

Witnesses could hear shouts that the incident was a terrorist attack. Some of them told CNN that people shouted "poison gas." Lakeshia Blackwell, 20, heard someone say, "I'll bet it's bin Laden."

When some patrons began to vomit or pass out -- apparently from chemical fumes -- the crowd scrambled to get down the club's single open staircase leading outside.

Fire Commissioner James Joyce said that laundry bags blocked a back door and some other exits were locked. However, he said these obstacles apparently did not contribute to the tragedy because all of those who died were trying to escape down the stairwell to the main entrance.

"It's a natural tendency for people to try to exit the way they came in," he said.

Joyce also said earlier reports that firemen had to use sledgehammers and crowbars to open doors to rescue victims turned out to be incorrect.

One witness described the scene: "The smaller women were getting pushed and stamped on because the bigger guys were really trying to make headway to get out the door, but once they came to the main entrance, it just kind of like got stuck."